Recently, there has been a consistent increase in the use of Cayman funds formed as Cayman exempted companies. The use of Cayman companies (as opposed to ELPs) in the traditional collateral capital call deal has given rise to the need for some unique structures.
Any proposed security over a Cayman exempted company’s right to draw down outstanding capital commitments from its shareholders differs significantly from the arrangements which have become common practice in relation to securing capital call rights of Cayman ELPs.
Unlike a traditional ELP capital call financing, where the capital call rights are a contractual obligation which can be assigned by way of security, the “contractual rights collateral package” in corporate subscription deals is typically linked to the obligations of the company (acting through its directors or investment managers) to issue shares. The creation of an obligation of the investors in the company to purchase shares “to-be-issued” in the future is different from the obligation of an investor in an ELP to fund the remainder of its commitment to the ELP as part of its existing interest and creates enforcement concerns and additional insolvency risks.